Introduction |
The increasing volume of sales passing over the Internet, as well as the
mounting number of cross-border transactions in the European Union has
caused the European Commission (hereinafter the “Commission”) to
adopt a new amended regulation, i.e. Regulation no. 330/2010 dated April
20, 2010, in force since June 1, 2010, regarding block exemptions of
agreements concluded between suppliers and distributors for the sale of
products and services (hereinafter the “New Regulation”). This
New Regulation has replaced former law in the field, i.e. Regulation no.
2790/1999, expiring on May 31, 2010, which has been in force for the
last decade.
“Vertical” agreements regarding supply and distribution agreements
entered into between companies operating at different levels of the
production and distribution chain as, for instance, agreements concluded
between suppliers and wholesalers or retailers, are increasingly used in
Internet sales, as well as in cross-border transactions among Member
States of the EU. Since the number of such “vertical” agreements in the
economy is extremely high, the amendment of the applicable regulations
in the field is of some consequence to economic entities active on the
EU market. It is the Commission’s view that a clear and predictable
implementation of the competition rules to supply and distribution
agreements is essential for the competitiveness of the EU economy and
for the general welfare of consumers. Distributors should be free to
satisfy consumer demand, whether in traditional “brick and mortar”
stores or in online shops. Moreover, the New Regulation should ensure
that consumers can buy goods and services at the best available prices
wherever they are located in the EU with greater choice and price
competition. This article focuses on the main amendments and
improvements of the New Regulation. |
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Brief Legislative Overview |
The Treaty on the Functioning of the EU (the “Treaty”) sets forth
in Article 101 (1) that any agreements between undertakings, and any
decisions of associations of undertakings and any concerted practices
which may affect trade between member states and which have as object
the prevention, restraint or distortion of competition within the EU’s
internal market are incompatible with such internal market and, thus,
forbidden. Vertical agreements fall under this interdiction.
Further along, the Treaty states that its provisions may be inapplicable
for certain monopolist agreements (See, Article 101 (3)) if they
contribute to the improvement of the production or distribution of
products, or to the promotion of technical or economical progress, but
ensuring to consumers an equitable part of the benefits obtained, if the
following conditions are cumulatively fulfilled: (i) they do not impose
to the undertakings in question restrictions which are not indispensable
for the achievement of the aforementioned objectives; and (ii) they do
not provide to undertakings the possibility to eliminate competition
with regard to a significant part of the products in question.
Due
to the fact that vertical agreements are considered to be less
restrictive on competition than horizontal agreements and often have
benefits and produce efficiencies which outweigh the negative effects on
competition, the Commission has adopted over time various block
exemption regulations in regard to vertical agreements, which basically
say that under a certain market share thresholds and provided there are
no hardcore restrictions on competition, vertical agreements are
exempted from the interdiction provided by Article 101 (1) of the Treaty
and are compatible with the competitive environment. The former
Regulation no. 2790/1999 that has been replaced by the New Regulation
provided for such block exemption of vertical agreements. The
regulations are accompanied by guidelines issued by the Commission for
their interpretation and application and for the analysis of vertical
agreements in general.
The aforementioned provisions included in the Treaty are directly
applicable in the national law of the EU member states, including
Romania. The same goes for the regulations adopted at the EU level.
The New Regulation states that, as regards the vertical agreements which
could be exempted in accordance with the provisions of Regulation
2790/1999, but which cannot qualify for exemption according to the New
Regulation, there is a transitory period of one year, until May 31,
2011. Therefore, undertakings have a period of one year to remedy the
structure of the vertical agreements in which they are involved in order
for them to be in compliance with the provisions of the New Regulation. |
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The New Regulation |
General Aspects
Basically, the New Regulation introduces a more restrictive market share
threshold for the application of its provisions, and it also clarifies
the manner in which it shall apply to restrictions on Internet sales. In
addition, the New Regulation has brought more clarity to the rules
covering selective distribution networks.
As regards market share, the principle remains similar to the provisions
of the old regulation, which is that undertakings are free to decide the
manner in which their products will be distributed, provided that their
agreements do not include price fixing clauses or other hardcore
restrictions on competition. So, manufacturers remain free to decide how
to distribute their products. But in order to benefit from the block
exemption, they cannot have a market share in excess of 30%. The
important amendment introduced by the New Regulation is that, from now
on, it will not be just the market share of the supplier or, as the case
may be, of the distributor, to be taken into consideration, but the
market share of both the distributor and the supplier must not exceed
30% on the relevant markets.
The introduction of the market share criteria for both suppliers, as
well as distributors, is meant to cover the situation where certain
distributors may have a large market power, which may generate negative
effects over competition. Therefore, this amendment is beneficial for
distributors having less power on the market as, in the absence of such
amendment, they could have been excluded from the distribution market.
However, in practice, the revised market share threshold is likely to
make it more difficult for undertakings to ascertain whether their
agreements are subject to block exemption or not, since they will now
have to assess both their own market share, as well as the market share
of their trading partner.
The fact that the regulation sets a 30% market share threshold does not
mean that the agreements concluded between companies with higher market
shares are illegal. It only means that, in such cases an assessment must
be made as to whether these agreements contain restrictive clauses and
whether they would be justified. In addition, the New Regulation also
addresses the issue of online sales. In that respect, the new rules
clarify certain aspects applicable both to selective distribution, as
well as to exclusive distribution systems, as detailed below.
Selective Distribution Systems
After long and controversial debates on this matter, the New Regulation
brings various significant improvements regarding selective distribution
agreements, as well as online sales. The Commission actually regards the
Internet as a very important tool for sales, which are beneficial for
consumers, as they could have access to lower prices and to certain
products, regardless of their location on EU territory.
Within
the selective distribution systems, only authorized distributors are
allowed to use the Internet as a selling method. But once they have been
authorized, they are free to sell through their websites, as they would
be in a “brick and mortar” shop. The suppliers cannot limit the
quantities of products sold through the Internet and they cannot charge
higher prices for the products which will be sold online. However, in
order to support the distributors’ efforts in its endeavor to increase
online sales, the supplier may set a fixed incentive for the
distributor. This could cover the distributor’s efforts with the graphic
design of the website, maintaining permanent product stocks and keeping
the website functional 24/7.
As mentioned above, limiting the percentage of sales performed through
the Internet out of the total sales achieved by a distributor represents
a hardcore restriction and thus it is not allowed. However, a
distributor may be required to sell a certain quantity of products in
its established shops in order to ensure their efficiency. The actual
quantity to be sold in this manner depends on the market share for the
respective product and the geographical area. In case such quantity is
not reasonably determined, this could amount to a hardcore restriction
and not benefit from the exemption.
A very significant amendment brought by the New Regulation refers to the
possibility of the members of a selective distribution system to
restrict sales with unauthorized distributors. Until now, the sales to
unauthorized distributors could be restricted with no limitations.
According to the New Regulation, such a restraint may be implemented
only with regard to the territory reserved by the supplier for the
selective distribution system. Consequently, the supplier must establish
a certain territory in which he implements the selective distribution,
and only afterwards could the supplier prohibit sales to unauthorized
distributors from that specific territory. This means that, in case a
supplier has established systems of selective distribution for certain
EU member states, the authorized distributors from these states are
allowed to sell, with no restriction, to unauthorized distributors from
other states in which the supplier has not established a system of
selective distribution.
Within selective distribution systems, suppliers may select their online
distributors, as they select the ones performing the distribution
through traditional networks, applying to them certain qualitative
criteria. They may choose to sell only to those distributors that have
one or more established shops, where clients may be able to actually see
and test the products which they intend to acquire. Furthermore,
distributors may be prohibited from using the online shops of certain
third persons, such as those websites hosting more distributors, or the
ones not complying with the supplier’s criteria and standards.
With regard to the criteria which may be imposed upon online
distributors, the Commission has confirmed that the standards imposed
upon online distributors may differ from the ones imposed on the
distributors using traditional methods, due to the different nature of
the two systems, as well as to the practical conditions in which sales
are being achieved. However, the criteria imposed by suppliers to
distributors must have the same objective and it must lead to comparable
results.
Exclusive Distribution Systems
The new guidelines accompanying the New Regulation have clarified the
concepts of “active” and “passive” sales. Active sales are when
distributors approach individual consumers, while passive sales are in
case of unsolicited requests from a customer to the distributor, usually
in response to untargeted advertising. A distributor may restrict active
sales, but not passive sales. Once an exclusive distributor has been
authorized for a certain territory, that distributor should be able to
sell to a consumer that has approached it from another EU country. There
is a specific prohibition on companies terminating transactions once a
foreign address has been mentioned on their consumers’ credit card
details, or for the distributors’ websites to automatically relocate
clients to the websites of distributors from the respective territories,
or for such websites to shut down once they have been accessed by
consumers from other territories.
Internet Publicity
The Commission elaborated a set of complex rules with regard to
restrictions which may be imposed upon distributors in relation to
publicity through the Internet. Until now, any such publicity was not in
principle considered as a form of active sale, as sales on the Internet
are regarded as part of passive sales.
These rules refer to Internet publicity having as their purpose the
attraction of consumers from a certain territory or a certain group of
consumers, which may be considered as a form of active sales efforts
towards those consumers. According to the New Regulation, the publicity
and the use of the Internet may be restricted if there is a chance that
they may lead to active sales within the territories of other exclusive
distributors or to certain groups of clients.
On the other hand, the Commission maintains its opinion that general
publicity, including publicity through the Internet to which clients
from other territories could have access in a reasonable manner, does
not represent a method of active sale and, consequently, it cannot be
subject to restrictions from suppliers. |
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Conclusions |
After
a long debate between the online retailers using the Internet and
suppliers applying selective distribution, the Commission chose to
regulate this aspect and provide expressly which restrictions on online
sales are permitted and which are not. The most important online
retailers are, of course, against these provisions as, in their view, no
restrictions should be applied to the Internet. However, luxury brands
producers hold the view that these restrictions are reasonable and
justified and allow them to protect the quality and image of their
brands, while preserving consumers’ interests because they can be
offered quality products and appropriate before and after sales
services. Only time will tell, as these provisions are enforced, who was
right in this regard and how the common market and consumers interests
are better safeguarded. |
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Editors Note: It is our policy not to mention our clients by name in
The Romanian Digest™ or discuss their business unless it is a matter of
public record and our clients approve. The information herein is correct
to the best of our knowledge and belief at press time. Specific advice
should be sought from us, however, before investment or other decisions
are made.
Copyright 2010 Rubin Meyer Doru & Trandafir, societate civila de avocati.
All rights reserved. No part of The Romanian Digest™ may be reproduced,
reused or redistributed in any form without prior written permission
from the publisher.
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